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Hedge Funds Are Plowing Into Encore Capital Group, Inc. (ECPG)

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Encore Capital Group, Inc. (NASDAQ:ECPG) based on that data.

Encore Capital Group, Inc. (NASDAQ:ECPG) investors should pay attention to an increase in activity from the world's largest hedge funds lately. ECPG was in 15 hedge funds' portfolios at the end of March. There were 13 hedge funds in our database with ECPG positions at the end of the previous quarter. Our calculations also showed that ECPG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746893" align="aligncenter" width="400"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's view the key hedge fund action encompassing Encore Capital Group, Inc. (NASDAQ:ECPG).

Hedge fund activity in Encore Capital Group, Inc. (NASDAQ:ECPG)

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ECPG over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ECPG A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, BloombergSen, managed by Jonathan Bloomberg, holds the biggest position in Encore Capital Group, Inc. (NASDAQ:ECPG). BloombergSen has a $15.9 million position in the stock, comprising 1.4% of its 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise George McCabe's Portolan Capital Management, and Mark Coe's Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position Second Curve Capital allocated the biggest weight to Encore Capital Group, Inc. (NASDAQ:ECPG), around 8.52% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, earmarking 1.37 percent of its 13F equity portfolio to ECPG.

As one would reasonably expect, some big names were leading the bulls' herd. Portolan Capital Management, managed by George McCabe, established the largest position in Encore Capital Group, Inc. (NASDAQ:ECPG). Portolan Capital Management had $2.7 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $2.1 million position during the quarter. The other funds with new positions in the stock are  Renaissance Technologies, Paul Marshall and Ian Wace's Marshall Wace LLP, and Benjamin A. Smith's Laurion Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Encore Capital Group, Inc. (NASDAQ:ECPG) but similarly valued. These stocks are Neenah Inc. (NYSE:NP), Welbilt, Inc. (NYSE:WBT), Kearny Financial Corp. (NASDAQ:KRNY), and Omeros Corporation (NASDAQ:OMER). This group of stocks' market valuations match ECPG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NP,13,22734,2 WBT,25,198010,-3 KRNY,15,74519,-6 OMER,9,125041,2 Average,15.5,105076,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $37 million in ECPG's case. Welbilt, Inc. (NYSE:WBT) is the most popular stock in this table. On the other hand Omeros Corporation (NASDAQ:OMER) is the least popular one with only 9 bullish hedge fund positions. Encore Capital Group, Inc. (NASDAQ:ECPG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on ECPG as the stock returned 47.6% during the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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